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Lockdowns in Manila and Luzon have proved a major drain on GDP growth for the Philippines. The weak first quarter numbers are only a taster of what's to come. Image Credit: AP

Manila: The Philippine economy contracted in the first three months of 2020 as restrictions to stem the coronavirus outbreak shut most businesses and sapped consumption - and a trend that is seen worsening in the current quarter.

Gross domestic product fell 0.2 per cent in the first quarter compared to a year ago, using 2018 as the new base year, the Philippine Statistics Authority said. That was worse than the median estimate of a 2.9 per cent growth in a Bloomberg survey of economists and was the first contraction since the fourth quarter of 1998.

GDP slumped by 5.1 per cent in the three months ended March 31 compared to the previous quarter. That’s the worst quarter-on-quarter performance on record, according to data compiled by Bloomberg.

“Saving hundreds and thousands of lives has come at a great cost to the Philippine economy,” Acting Planning Secretary Karl Kendrick Chua said at a virtual briefing. The second quarter will be worse because of the lockdown since mid-March that covers the capital and much of the Luzon island that accounts for more than half of domestic output.

Last quarter’s print surprised many analysts, who both see more policy rate cuts on the horizon.

“The surprise contraction in Philippine first quarter GDP underscores the severity of the coronavirus pandemic, and highlights that a deeper slump is yet to come,” according to Justin Jimenez of Bloomberg Economics. “With the lockdown on Luzon effectively shutting down the country’s main economic engine from mid-March, that is paving the way for a much steeper plunge in 2Q.”

Reopening schedule

President Rodrigo Duterte plans to gradually reopen the economy after May 15, possibly allowing construction, manufacturing and other essential services to restart, his spokesman said on April 28. With improved testing capacity and as curbs are lifted in some areas, the economy may see a “good recovery” in the second-half, Chua said.

Rescue act

The Philippines is drafting an economic recovery plan to support hard-hit industries. To raise funds, the government sold a $2.35 billion dollar bond and is negotiating as much as $7 billion from multilateral lenders.

The government will “need to beef up the stimulus rescue plan,” said Nicholas Mapa, a Manila-based economist at ING Groep NV. “Monetary policy has done much of the heavy lifting and we look for the government to super size the current recovery bill given that first quarter is but a preview of the steep drop we’ll see in second and third.”